Letta prudent with EC poised to close deficit procedure

27/05/2013

No effect on budget until 2014, says premier

(By Paul Virgo)
Rome, May 27 - Premier Enrico Letta said Monday
he was satisfied that the European Commission (EC) is set to end
the excessive-deficit procedure against Italy but warned that
the benefits would not be immediate.
The end of the procedure, which is set to be ratified at a
meeting on Wednesday, will free up eight billion euros of public
money that would otherwise have had to have gone into bringing
down the ratio between debt and gross domestic product (GDP).
States that are under an excessive deficit procedure and
have a debt-GDP ratio of over 60% are obliged to bring that
ratio down by 5% a year. Italy's debt-GDP ratio is around 130%.
But Letta stressed that the end of the procedure does not
mean the government has this cash available immediately to use
for a number of pressing problems faced by his left-right
administration.
"The closure of the EU procedure for excessive deficit is
certainly good news, but it will only have an effect on our
budget in 2014," Letta told a meeting with regional governors,
according to a source who was present.
"As we know, it will not free up resources immediately".
The EC is set to close the procedure it opened in 2009 as
Rome has forecast that Italy's budget-GDP ratio will be under
the 3% threshold allowed by the EU this year, at 2.9%.
It was 3% last year.
A country has to be within the deficit margin for two
consecutive years for the procedure to be closed.
Letta needs to find money for measures to boost jobs in
recession-hit Italy, with the number of unemployed close to
three million and almost four out of 10 young people aged
15-to-24 jobless.
He wants to avoid a 1% increase in the top band of value
added tax scheduled for July too.
He will also need around eight billion euros if he is to
satisfy demands from Silvio Berlusconi's People of Freedom (PdL)
party to scrap the IMU property tax and return revenues taken in
2012.
The PdL has threatened to withdraw its support from Letta's
government and sink it, unless the tax is scrapped to respect a
key pledge Berlusconi made in the run-up to February's election.
Letta, who belongs to the centre-left Democratic Party
(PD), has suspended the IMU payments due in June and promised to
revamp the tax, but he has so far not pledged to abolish it
completely.
Giorgio Squinzi, the head industrial employers'
confederation Confindustria, said the money freed up by the end
of the EU procedure should be used to help pay money owed by the
public sector to private suppliers.
The government plans to repay 40 billion euros over the
next 12 months but the actual extent of the debt to the private
sector is far higher.
Squinzi said the real figure could be as high as 130-140
billion euros.
He said firms desperately need the cash they are owed from
the government as the recession has led to another credit crunch
in Italy.
While the EC is set to end the excessive-deficit procedure,
a draft of its report related to this also featured a series of
calls for action for Rome to take in order to remedy its
economic ailments, following a decade of sluggish growth.
The document said Italy had to push forward with structural
economic reform, including measures to make the labour market
more flexible, and promote greater efficiency in the civil
service and the banking sector, among other things.